[COMMITTEE PRINT] - financialservices.house.gov · [COMMITTEE PRINT] [Showing H.R. 940 as reported...

[COMMITTEE PRINT]

[Showing H.R. 940 as reported by the Subcommittee on Cap-ital Markets and Government Sponsored Enterprises on May 4, 2011]

112TH CONGRESS 1ST SESSION H. R. 940To establish standards for covered bond programs and a covered bond

regulatory oversight program, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 8, 2011

Mr. GARRETT (for himself and Mrs. MALONEY) introduced the following bill;

which was referred to the Committee on Financial Services, and in addi-

tion to the Committee on Ways and Means, for a period to be subse-

quently determined by the Speaker, in each case for consideration of such

provisions as fall within the jurisdiction of the committee concerned

A BILL To establish standards for covered bond programs and a

covered bond regulatory oversight program, and for other

purposes.

Be it enacted by the Senate and House of Representa-1

tives of the United States of America in Congress assembled, 2

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SECTION 1. SHORT TITLE. 1

This Act may be cited as the ‘‘United States Covered 2

Bond Act of 2011’’. 3

SEC. 2. DEFINITIONS. 4

For purposes of this Act, the following definitions 5

shall apply: 6

(1) ANCILLARY ASSET.—The term ‘‘ancillary 7

asset’’ means—8

(A) any interest rate or currency swap as-9

sociated with 1 or more eligible assets, sub-10

stitute assets, or other assets in a cover pool; 11

(B) any credit enhancement or liquidity ar-12

rangement associated with 1 or more eligible 13

assets, substitute assets, or other assets in a 14

cover pool; 15

(C) any guarantee, letter-of-credit right, or 16

other secondary obligation that supports any 17

payment or performance of 1 or more eligible 18

assets, substitute assets, or other assets in a 19

cover pool; and 20

(D) any proceeds of, or other property in-21

cident to, 1 or more eligible assets, substitute 22

assets, or other assets in a cover pool. 23

(2) CORPORATION.—The term ‘‘Corporation’’ 24

means the Federal Deposit Insurance Corporation. 25



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(3) COVER POOL.—The term ‘‘cover pool’’ 1

means a dynamic pool of assets that is comprised 2

of—3

(A) in the case of any eligible issuer de-4

scribed in subparagraph (A), (B), or (C) of 5

paragraph (9)—6

(i) 1 or more eligible assets from a 7

single eligible asset class; and 8

(ii) 1 or more substitute assets or an-9

cillary assets; and 10

(B) in the case of any eligible issuer de-11

scribed in paragraph (9)(D)—12

(i) the covered bonds issued by each 13

sponsoring eligible issuer; and 14

(ii) 1 or more substitute assets or an-15

cillary assets. 16

(4) COVERED BOND.—The term ‘‘covered 17

bond’’ means any recourse debt obligation of an eli-18

gible issuer that—19

(A) has an original term to maturity of not 20

less than 1 year; 21

(B) is secured by a perfected security in-22

terest in or other perfected lien on a cover pool 23

that is owned directly or indirectly by the issuer 24

of the obligation; 25



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(C) is issued under a covered bond pro-1

gram that has been approved by the applicable 2

covered bond regulator; 3

(D) is identified in a register of covered 4

bonds that is maintained by the Secretary; and 5

(E) is not a deposit (as defined in section 6

3(l) of the Federal Deposit Insurance Act (12 7

U.S.C. 1813(l))). 8

(5) COVERED BOND PROGRAM.—The term 9

‘‘covered bond program’’ means any program of an 10

eligible issuer under which, on the security of a sin-11

gle cover pool, 1 or more series or tranches of cov-12

ered bonds may be issued. 13

(6) COVERED BOND REGULATOR.—The term 14

‘‘covered bond regulator’’ means—15

(A) for any eligible issuer that is subject to 16

the jurisdiction of an appropriate Federal bank-17

ing agency (as defined in section 3(q) of the 18

Federal Deposit Insurance Act (12 U.S.C. 19

1813(q))), the appropriate Federal banking 20

agency; 21

(B) for any eligible issuer that is described 22

in paragraph (9)(D), that is not subject to the 23

jurisdiction of an appropriate Federal banking 24

agency, and that is sponsored by only 1 eligible 25



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issuer, the covered bond regulator for the spon-1

sor; 2

(C) for any eligible issuer that is described 3

in paragraph (9)(D), that is not subject to the 4

jurisdiction of an appropriate Federal banking 5

agency, and that is sponsored by more than 1 6

eligible issuer, the covered bond regulator for 7

the sponsor whose covered bonds constitute the 8

largest share of the cover pool of the issuer; 9

and 10

(D) for any other eligible issuer that is not 11

subject to the jurisdiction of an appropriate 12

Federal banking agency, the Secretary. 13

(7) ELIGIBLE ASSET.—The term ‘‘eligible 14

asset’’ means—15

(A) in the case of the residential mortgage 16

asset class—17

(i) any first-lien mortgage loan that is 18

secured by 1-to-4 family residential prop-19

erty; 20

(ii) any mortgage loan that is insured 21

under the National Housing Act (12 22

U.S.C. 1701 et seq.); and 23



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(iii) any loan that is guaranteed, in-1

sured, or made under chapter 37 of title 2

38, United States Code; 3

(B) in the case of the commercial mort-4

gage asset class, any commercial mortgage loan 5

(including any multifamily mortgage loan); 6

(C) in the case of the public sector asset 7

class—8

(i) any security issued by a State, mu-9

nicipality, or other governmental authority; 10

(ii) any loan made to a State, munici-11

pality, or other governmental authority; 12

and 13

(iii) any loan, security, or other obli-14

gation that is insured or guaranteed, in 15

full or substantially in full, by the full faith 16

and credit of the United States Govern-17

ment (whether or not such loan, security, 18

or other obligation is also part of another 19

eligible asset class); 20

(D) in the case of the auto asset class, any 21

auto loan or lease; 22

(E) in the case of the student loan asset 23

class, any student loan (whether guaranteed or 24

nonguaranteed); 25



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(F) in the case of the credit or charge card 1

asset class, any extension of credit to a person 2

under an open-end credit plan; 3

(G) in the case of the small business asset 4

class, any loan that is made or guaranteed 5

under a program of the Small Business Admin-6

istration; and 7

(H) in the case of any other eligible asset 8

class, any asset designated by the Secretary, by 9

rule and in consultation with the covered bond 10

regulators, as an eligible asset for purposes of 11

such class. 12

(8) ELIGIBLE ASSET CLASS.—The term ‘‘eligi-13

ble asset class’’ means—14

(A) a residential mortgage asset class; 15

(B) a commercial mortgage asset class; 16

(C) a public sector asset class; 17

(D) an auto asset class; 18

(E) a student loan asset class; 19

(F) a credit or charge card asset class; 20

(G) a small business asset class; and 21

(H) any other eligible asset class des-22

ignated by the Secretary, by rule and in con-23

sultation with the covered bond regulators. 24



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(9) ELIGIBLE ISSUER.—The term ‘‘eligible 1

issuer’’ means—2

(A) any insured depository institution and 3

any subsidiary of such institution; 4

(B) any bank holding company, any sav-5

ings and loan holding company, and any sub-6

sidiary of any of such companies; 7

(C) any nonbank financial company (as de-8

fined in section 102(a)(4) of the Dodd-Frank 9

Wall Street Reform and Consumer Protection 10

Act (12 U.S.C. 5311(a)(4))) that is approved as 11

an eligible issuer by the applicable covered bond 12

regulator and any subsidiary of such company; 13

and 14

(D) any issuer that is sponsored by 1 or 15

more eligible issuers for the sole purpose of 16

issuing covered bonds on a pooled basis. 17

(10) OVERSIGHT PROGRAM.—The term ‘‘over-18

sight program’’ means the covered bond regulatory 19

oversight program established under section 3(a). 20

(11) SECRETARY.—The term ‘‘Secretary’’ 21

means the Secretary of the Department of the 22

Treasury. 23

(12) SUBSTITUTE ASSET.—The term ‘‘sub-24

stitute asset’’ means—25



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9

(A) cash; 1

(B) any direct obligation of the United 2

States Government, and any security or other 3

obligation whose full principal and interest are 4

insured or guaranteed by the full faith and 5

credit of the United States Government; 6

(C) any direct obligation of a United 7

States Government corporation or Government-8

sponsored enterprise of the highest credit qual-9

ity, and any other security or other obligation 10

of the highest credit quality whose full principal 11

and interest are insured or guaranteed by such 12

corporation or enterprise, except that the out-13

standing principal amount of these obligations 14

in any cover pool may not exceed an amount 15

equal to 20 percent of the outstanding principal 16

amount of all assets in the cover pool without 17

the approval of the applicable covered bond reg-18

ulator; 19

(D) any overnight investment in Federal 20

funds; 21

(E) any other substitute asset designated 22

by the Secretary, by rule and in consultation 23

with the covered bond regulators; and 24



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(F) any deposit account or securities ac-1

count into which only an asset described in sub-2

paragraph (A), (B), (C), (D), or (E) may be de-3

posited or credited. 4

SEC. 3. REGULATORY OVERSIGHT OF COVERED BOND PRO-5

GRAMS ESTABLISHED. 6

(a) ESTABLISHMENT.—7

(1) IN GENERAL.—Not later than 180 days 8

after the date of the enactment of this Act, the Sec-9

retary shall, by rule and in consultation with the 10

covered bond regulators, establish a covered bond 11

regulatory oversight program that provides for—12

(A) covered bond programs to be evaluated 13

according to reasonable and objective standards 14

in order to be approved under paragraph (2), 15

including any additional eligibility standards for 16

eligible assets and any other criteria determined 17

appropriate by the Secretary to further the pur-18

poses of this Act; 19

(B) covered bond programs to be main-20

tained in a manner that is consistent with this 21

Act and safe and sound asset-liability manage-22

ment and other financial practices; and 23

(C) any estate created under section 4 to 24

be administered in a manner that is consistent 25



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with maximizing the value and the proceeds of 1

the related cover pool in a resolution under this 2

Act. 3

(2) APPROVAL OF EACH COVERED BOND PRO-4

GRAM.—5

(A) IN GENERAL.—A covered bond shall be 6

subject to this Act only if the covered bond is 7

issued by an eligible issuer under a covered 8

bond program that is approved by the applica-9

ble covered bond regulator. 10

(B) APPROVAL PROCESS.—Each covered 11

bond regulator shall apply the standards estab-12

lished by the Secretary under the oversight pro-13

gram to evaluate a covered bond program that 14

has been submitted by an eligible issuer for ap-15

proval. Each covered bond regulator also shall 16

take into account relevant supervisory factors, 17

including safety and soundness considerations, 18

in evaluating a covered bond program that has 19

been submitted for approval. Each covered bond 20

regulator, promptly after approving a covered 21

bond program, shall provide the Secretary with 22

the name of the covered bond program, the 23

name of the eligible issuer, and all other infor-24

mation reasonably requested by the Secretary in 25



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order to update the registry under paragraph 1

(3)(A). Each eligible issuer, promptly after 2

issuing a covered bond under an approved cov-3

ered bond program, shall provide the Secretary 4

with all information reasonably requested by 5

the Secretary in order to update the registry 6

under paragraph (3)(B). 7

(C) EXISTING COVERED BOND PRO-8

GRAMS.—A covered bond regulator may approve 9

a covered bond program that is in existence on 10

the date of the enactment of this Act. Upon 11

such approval, each covered bond under the 12

covered bond program shall be subject to this 13

Act, regardless of when the covered bond was 14

issued. 15

(D) MULTIPLE COVERED BOND PROGRAMS 16

PERMITTED.—An eligible issuer may have more 17

than 1 covered bond program. 18

(E) CEASE AND DESIST AUTHORITY.—The 19

applicable covered bond regulator may direct an 20

eligible issuer to cease issuing covered bonds 21

under an approved covered bond program if the 22

covered bond program is not maintained in a 23

manner that is consistent with this Act and the 24

oversight program and if, after notice that is 25



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reasonable under the circumstances, the issuer 1

does not remedy all deficiencies identified by 2

the applicable covered bond regulator. 3

(3) REGISTRY.—Under the oversight program, 4

the Secretary shall maintain a registry that is pub-5

lished on a Web site available to the public and that, 6

for each covered bond program approved by a cov-7

ered bond regulator, contains—8

(A) the name of the covered bond program, 9

the name of the eligible issuer, and all other in-10

formation that the Secretary considers nec-11

essary to adequately identify the covered bond 12

program and the eligible issuer; and 13

(B) all information that the Secretary con-14

siders necessary to adequately identify all out-15

standing covered bonds issued under the cov-16

ered bond program (including the reports de-17

scribed in paragraphs (3) and (4) of subsection 18

(b)). 19

(4) FEES.—Each covered bond regulator may 20

levy, on the issuers of covered bonds under the pri-21

mary supervision of such covered bond regulator, 22

reasonably apportioned fees that such covered bond 23

regulator considers necessary, in the aggregate, to 24

defray the costs of such covered bond regulator car-25



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14

rying out the provisions of this Act. Such funds shall 1

not be construed to be Government funds or appro-2

priated monies and shall not be subject to apportion-3

ment for purposes of chapter 15 of title 31, United 4

States Code, or any other provision of law. 5

(b) MINIMUM OVER-COLLATERALIZATION REQUIRE-6

MENTS.—7

(1) REQUIREMENTS ESTABLISHED.—The Sec-8

retary, by rule and in consultation with the covered 9

bond regulators, shall establish minimum over-10

collateralization requirements for covered bonds 11

backed by each of the eligible asset classes. The min-12

imum over-collateralization requirements shall be de-13

signed to ensure that sufficient eligible assets and 14

substitute assets are maintained in the cover pool to 15

satisfy all principal and interest payments on the 16

covered bonds when due through maturity and shall 17

be based on the credit, collection, and interest rate 18

risks (excluding the liquidity risks) associated with 19

the eligible asset class. 20

(2) ASSET COVERAGE TEST.—The eligible as-21

sets and the substitute assets in any cover pool shall 22

be required, in the aggregate, to meet at all times 23

the applicable minimum over-collateralization re-24

quirements. 25



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(3) MONTHLY REPORTING.—On a monthly 1

basis, each issuer of covered bonds shall submit a re-2

port on whether the cover pool that secures the cov-3

ered bonds meets the applicable minimum over-4

collateralization requirements to—5

(A) the Secretary; 6

(B) the applicable covered bond regulator; 7

(C) the applicable indenture trustee; 8

(D) the applicable covered bondholders; 9

and 10

(E) the applicable independent asset mon-11

itor. 12

(4) INDEPENDENT ASSET MONITOR.—13

(A) APPOINTMENT.—Each issuer of cov-14

ered bonds shall appoint the indenture trustee 15

for the covered bonds, or another unaffiliated 16

entity, as an independent asset monitor for the 17

applicable cover pool. 18

(B) DUTIES.—An independent asset mon-19

itor appointed under subparagraph (A) shall, on 20

an annual or other more frequent periodic basis 21

determined by the Secretary under the over-22

sight program—23



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(i) verify whether the cover pool meets 1

the applicable minimum over-2

collateralization requirements; and 3

(ii) report to the Secretary, the appli-4

cable covered bond regulator, the applica-5

ble indenture trustee, and the applicable 6

covered bondholders on whether the cover 7

pool meets the applicable minimum over-8

collateralization requirements. 9

(5) NO LOSS OF STATUS.—Covered bonds shall 10

remain subject to this Act regardless of whether the 11

applicable cover pool ceases to meet the applicable 12

minimum over-collateralization requirements. 13

(6) FAILURE TO MEET REQUIREMENTS.—14

(A) IN GENERAL.—If a cover pool fails to 15

meet the applicable minimum over-16

collateralization requirements, and if the failure 17

is not cured within the time specified in the re-18

lated transaction documents, the failure shall be 19

an uncured default for purposes of section 4(a). 20

(B) NOTICE REQUIRED.—An issuer of cov-21

ered bonds shall promptly give the Secretary 22

and the applicable covered bond regulator writ-23

ten notice if the cover pool securing the covered 24

bonds fails to meet the applicable minimum 25



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over-collateralization requirements, if the failure 1

is cured within the time specified in the related 2

transaction documents, or if the failure is not 3

so cured. 4

(c) REQUIREMENTS FOR ELIGIBLE ASSETS.—5

(1) REQUIREMENTS.—6

(A) LOANS.—A loan shall not qualify as an 7

eligible asset for so long as the loan is delin-8

quent for more than 60 consecutive days. 9

(B) SECURITIES.—A security shall not 10

qualify as an eligible asset for so long as the se-11

curity does not meet any credit-quality require-12

ment under this Act. 13

(C) ORIGINATION.—An asset shall not 14

qualify as an eligible asset if the asset was not 15

originated in compliance with any rule or super-16

visory guidance of a Federal agency applicable 17

to the asset at the time of origination. 18

(D) NO DOUBLE PLEDGE.—An asset shall 19

not qualify as an eligible asset for so long as 20

the asset is subject to a prior perfected security 21

interest or other prior perfected lien that has 22

been granted in an unrelated transaction. Noth-23

ing in this Act shall affect such a prior per-24



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fected security interest or other prior perfected 1

lien. 2

(2) FAILURE TO MEET REQUIREMENTS.—If an 3

asset in a cover pool does not satisfy any applicable 4

requirement described in paragraph (1) or any other 5

applicable standard or criterion described in this 6

Act, the oversight program, or the related trans-7

action documents, the asset shall not qualify as an 8

eligible asset for purposes of the asset coverage test 9

described in subsection (b)(2). A disqualified asset 10

shall remain in the cover pool unless and until re-11

moved by the issuer in compliance with the provi-12

sions of this Act, the oversight program, and the re-13

lated transaction documents. No disqualified asset 14

may be removed from the cover pool after an estate 15

has been created for the related covered bond pro-16

gram under section 4(b)(1) or 4(c)(2), except in con-17

nection with the management of the cover pool 18

under section 4(d)(1)(E). 19

(d) OTHER REQUIREMENTS.—20

(1) BOOKS AND RECORDS OF ISSUER.—Each 21

issuer of covered bonds shall clearly mark its books 22

and records to identify the assets that comprise the 23

cover pool securing the covered bonds. 24



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(2) SCHEDULE OF ELIGIBLE ASSETS AND SUB-1

STITUTE ASSETS.—Each issuer of covered bonds 2

shall deliver to the applicable indenture trustee and 3

the applicable independent asset monitor, on at least 4

a monthly basis, a schedule that identifies all eligible 5

assets and substitute assets in the cover pool secur-6

ing the covered bonds. 7

(3) SINGLE ELIGIBLE ASSET CLASS.—No cover 8

pool described in section 2(3)(A) may include eligible 9

assets from more than 1 eligible asset class. No 10

cover poll described in section 2(3)(B) may include 11

covered bonds backed by more than 1 eligible asset 12

class. 13

SEC. 4. RESOLUTION UPON DEFAULT OR INSOLVENCY. 14

(a) UNCURED DEFAULT DEFINED.—For purposes of 15

this section, the term ‘‘uncured default’’ means a default 16

on a covered bond that has not been cured within the time, 17

if any, specified in the related transaction documents. 18

(b) DEFAULT ON COVERED BONDS PRIOR TO CON-19

SERVATORSHIP, RECEIVERSHIP, LIQUIDATION, OR BANK-20

RUPTCY.—21

(1) CREATION OF SEPARATE ESTATE.—If an 22

uncured default occurs on a covered bond before the 23

issuer of the covered bond enters conservatorship, 24

receivership, liquidation, or bankruptcy, an estate 25



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20

shall be immediately and automatically created by 1

operation of law and shall exist and be administered 2

separate and apart from the issuer or any subse-3

quent conservatorship, receivership, liquidating agen-4

cy, or estate in bankruptcy for the issuer or any 5

other assets of the issuer. A separate estate shall be 6

created for each affected covered bond program. 7

(2) ASSETS AND LIABILITIES OF ESTATE.—Any 8

estate created under paragraph (1) shall be com-9

prised of the cover pool (including over-10

collateralization in the cover pool) that secures the 11

covered bond. The cover pool shall be immediately 12

and automatically released to and held by the estate 13

free and clear of any right, title, interest, or claim 14

of the issuer or any conservator, receiver, liquidating 15

agent, or trustee in bankruptcy for the issuer or any 16

other assets of the issuer. The estate shall be fully 17

liable on the covered bond and all other covered 18

bonds and related obligations of the issuer (including 19

obligations under related derivative transactions) 20

that are secured by a perfected security interest in 21

or other perfected lien on the cover pool when the 22

estate is created. The estate shall not be liable on 23

any obligation of the issuer that is not secured by 24

a perfected security interest in or other perfected 25



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21

lien on the cover pool when the estate is created. No 1

conservator, receiver, liquidating agent, or trustee in 2

bankruptcy for the issuer may charge or assess the 3

estate for any claim of the conservator, receiver, liq-4

uidating agent, or trustee in bankruptcy or the con-5

servatorship, receivership, liquidating agency, or es-6

tate in bankruptcy and may not obtain or perfect a 7

security interest in or other lien on the cover pool 8

to secure such a claim. 9

(3) RETENTION OF CLAIMS.—Any holder of a 10

covered bond or related obligation for which an es-11

tate has become liable under paragraph (2) shall re-12

tain a claim against the issuer for any deficiency 13

with respect to the covered bond or related obliga-14

tion. If the issuer enters conservatorship, receiver-15

ship, liquidation, or bankruptcy, any contingent 16

claim for such a deficiency shall be allowed as a 17

provable claim in the conservatorship, receivership, 18

liquidating agency, or bankruptcy case. The contin-19

gent claim shall be estimated by the conservator, re-20

ceiver, liquidating agent, or bankruptcy court for 21

purposes of allowing the claim as a provable claim 22

if awaiting the fixing of the contingent claim would 23

unduly delay the resolution of the conservatorship, 24

receivership, liquidating agency, or bankruptcy case. 25



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(4) RESIDUAL INTEREST.—1

(A) ISSUANCE OF RESIDUAL INTEREST.—2

Upon the creation of an estate under paragraph 3

(1), a residual interest in the estate shall be im-4

mediately and automatically issued by operation 5

of law to the issuer. 6

(B) NATURE OF RESIDUAL INTEREST.—7

The residual interest under subparagraph (A) 8

shall—9

(i) be an exempted security as de-10

scribed in section 5; 11

(ii) represent the right to any surplus 12

from the cover pool after the covered bonds 13

and all other liabilities of the estate have 14

been fully and irrevocably paid; and 15

(iii) be evidenced by a certificate exe-16

cuted by the trustee of the estate. 17

(5) OBLIGATIONS OF ISSUER.—18

(A) IN GENERAL.—After the creation of an 19

estate under paragraph (1), the issuer shall—20

(i) transfer to or at the direction of 21

the trustee for the estate all property of 22

the estate that is in the possession or 23

under the control of the issuer, including 24

all tangible or electronic books, records, 25



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23

files, and other documents or materials re-1

lating to the assets and liabilities of the es-2

tate; and 3

(ii) at the election of the trustee or a 4

servicer or administrator for the estate, 5

continue servicing the applicable cover pool 6

for 120 days after the creation of the es-7

tate in return for a fair-market-value fee, 8

as determined by the trustee in consulta-9

tion with the applicable covered bond regu-10

lator, that shall be payable from the estate 11

as an administrative expense. 12

(B) OBLIGATIONS ABSOLUTE.—Neither 13

the issuer, whether acting as debtor in posses-14

sion or in any other capacity, nor any conser-15

vator, receiver, liquidating agent, or trustee in 16

bankruptcy for the issuer or any other assets of 17

the issuer may disaffirm, repudiate, or reject 18

the obligation to turn over property or to con-19

tinue servicing the cover pool as provided in 20

subparagraph (A). 21

(c) DEFAULT ON COVERED BONDS UPON CON-22

SERVATORSHIP, RECEIVERSHIP, LIQUIDATION, OR BANK-23

RUPTCY.—24



f:\VHLC\060811\060811.012.xml (495596|7)

24

(1) CORPORATION CONSERVATORSHIP OR RE-1

CEIVERSHIP.—2

(A) IN GENERAL.—If the Corporation is 3

appointed as conservator or receiver for an 4

issuer of covered bonds before an uncured de-5

fault results in the creation of an estate under 6

subsection (b), the Corporation as conservator 7

or receiver shall have an exclusive right, during 8

the 180-day period beginning on the date of the 9

appointment, to transfer any cover pool owned 10

by the issuer in its entirety, together with all 11

covered bonds and related obligations that are 12

secured by a perfected security interest in or 13

other perfected lien on the cover pool, to an-14

other eligible issuer that meets all conditions 15

and requirements specified in the related trans-16

action documents. The Corporation as conser-17

vator or receiver may not remove any asset 18

from the cover pool, except to the extent other-19

wise agreed by a transferee that has assumed 20

the covered bond program pursuant to subpara-21

graph (C). 22

(B) OBLIGATIONS DURING 180-DAY PE-23

RIOD.—During the 180-day period described in 24

subparagraph (A), the Corporation as conser-25



f:\VHLC\060811\060811.012.xml (495596|7)

25

vator or receiver shall fully and timely satisfy 1

all monetary and nonmonetary obligations of 2

the issuer under all covered bonds and the re-3

lated transaction documents and shall fully and 4

timely cure all defaults by the issuer (other 5

than its conservatorship or receivership) under 6

the applicable covered bond program, in each 7

case, until the earlier of—8

(i) the transfer of the applicable cov-9

ered bond program to another eligible 10

issuer as provided in subparagraph (A); or 11

(ii) the delivery to the Secretary, the 12

applicable covered bond regulator, the ap-13

plicable indenture trustee, and the applica-14

ble covered bondholders of a written notice 15

from the Corporation as conservator or re-16

ceiver electing to cease further perform-17

ance under the applicable covered bond 18

program. 19

(C) ASSUMPTION BY TRANSFEREE.—If the 20

Corporation as conservator or receiver transfers 21

a covered bond program to another eligible 22

issuer within the 180-day period as provided in 23

subparagraph (A), the transferee shall take 24

ownership of the applicable cover pool and shall 25



f:\VHLC\060811\060811.012.xml (495596|7)

26

become fully liable on all covered bonds and re-1

lated obligations of the issuer that are secured 2

by a perfected security interest in or other per-3

fected lien on the cover pool. 4

(2) OTHER CIRCUMSTANCES.—An estate shall 5

be immediately and automatically created by oper-6

ation of law and shall exist and be administered sep-7

arate and apart from an issuer of covered bonds and 8

any conservatorship, receivership, liquidating agency, 9

or estate in bankruptcy for the issuer or any other 10

assets of the issuer, if—11

(A) a conservator, receiver, liquidating 12

agent, or trustee in bankruptcy, other than the 13

Corporation, is appointed for the issuer before 14

an uncured default results in the creation of an 15

estate under subsection (b); or 16

(B) in the case of the appointment of the 17

Corporation as conservator or receiver as de-18

scribed in paragraph (1)(A), the Corporation as 19

conservator or receiver—20

(i) does not complete the transfer of 21

the applicable covered bond program to an-22

other eligible issuer within the 180-day pe-23

riod as provided in paragraph (1)(A); 24



f:\VHLC\060811\060811.012.xml (495596|7)

27

(ii) delivers to the Secretary, the ap-1

plicable covered bond regulator, the appli-2

cable indenture trustee, and the applicable 3

covered bondholders a written notice elect-4

ing to cease further performance under the 5

applicable covered bond program; or 6

(iii) fails to fully and timely satisfy all 7

monetary and nonmonetary obligations of 8

the issuer under the covered bonds and the 9

related transaction documents or to fully 10

and timely cure all defaults by the issuer 11

(other than its conservatorship or receiver-12

ship) under the applicable covered bond 13

program. 14

A separate estate shall be created for each affected 15

covered bond program. 16

(3) ASSETS AND LIABILITIES OF ESTATE.—Any 17

estate created under paragraph (2) shall be com-18

prised of the cover pool (including over-19

collateralization in the cover pool) that secures the 20

covered bonds. The cover pool shall be immediately 21

and automatically released to and held by the estate 22

free and clear of any right, title, interest, or claim 23

of the issuer or any conservator, receiver, liquidating 24

agent, or trustee in bankruptcy for the issuer or any 25



f:\VHLC\060811\060811.012.xml (495596|7)

28

other assets of the issuer. The estate shall be fully 1

liable on the covered bonds and all other covered 2

bonds and related obligations of the issuer (including 3

obligations under related derivative transactions) 4

that are secured by a perfected security interest in 5

or other perfected lien on the cover pool when the 6

estate is created. The estate shall not be liable on 7

any obligation of the issuer that is not secured by 8

a perfected security interest in or other perfected 9

lien on the cover pool when the estate is created. No 10

conservator, receiver, liquidating agent, or trustee in 11

bankruptcy for the issuer may charge or assess the 12

estate for any claim of the conservator, receiver, liq-13

uidating agent, or trustee in bankruptcy or the con-14

servatorship, receivership, liquidating agency, or es-15

tate in bankruptcy and may not obtain or perfect a 16

security interest in or other lien on the cover pool 17

to secure such a claim. 18

(4) CONTINGENT CLAIM.—Any contingent claim 19

against an issuer for a deficiency with respect to a 20

covered bond or related obligation for which an es-21

tate has become liable under paragraph (3) shall be 22

allowed as a provable claim in the conservatorship, 23

receivership, liquidating agency, or bankruptcy case 24

for the issuer. The contingent claim shall be esti-25



f:\VHLC\060811\060811.012.xml (495596|7)

29

mated by the conservator, receiver, liquidating 1

agent, or bankruptcy court for purposes of allowing 2

the claim as a provable claim if awaiting the fixing 3

of the contingent claim would unduly delay the reso-4

lution of the conservatorship, receivership, liqui-5

dating agency, or bankruptcy case. 6

(5) RESIDUAL INTEREST.—7

(A) ISSUANCE OF RESIDUAL INTEREST.—8

Upon the creation of an estate under paragraph 9

(2), and regardless of whether any contingent 10

claim described in paragraph (4) becomes fixed 11

or is estimated, a residual interest in the estate 12

shall be immediately and automatically issued 13

by operation of law to the conservator, receiver, 14

liquidating agent, or trustee in bankruptcy for 15

the issuer. 16

(B) NATURE OF RESIDUAL INTEREST.—17

The residual interest under subparagraph (A) 18

shall—19

(i) be an exempted security as de-20

scribed in section 5; 21

(ii) represent the right to any surplus 22

from the cover pool after the covered bonds 23

and all other liabilities of the estate have 24

been fully and irrevocably paid; and 25



f:\VHLC\060811\060811.012.xml (495596|7)

30

(iii) be evidenced by a certificate exe-1

cuted by the trustee of the estate. 2

(6) OBLIGATIONS OF ISSUER.—3

(A) IN GENERAL.—After the creation of an 4

estate under paragraph (2), the issuer and its 5

conservator, receiver, liquidating agent, or 6

trustee in bankruptcy shall—7

(i) transfer to or at the direction of 8

the trustee for the estate all property of 9

the estate that is in the possession or 10

under the control of the issuer or its con-11

servator, receiver, liquidating agent, or 12

trustee in bankruptcy, including all tan-13

gible or electronic books, records, files, and 14

other documents or materials relating to 15

the assets and liabilities of the estate; and 16

(ii) at the election of the trustee or a 17

servicer or administrator for the estate, 18

continue servicing the applicable cover pool 19

for 120 days after the creation of the es-20

tate in return for a fair-market-value fee, 21

as determined by the trustee in consulta-22

tion with the applicable covered bond regu-23

lator, that shall be payable from the estate 24

as an administrative expense. 25



f:\VHLC\060811\060811.012.xml (495596|7)

31

(B) OBLIGATIONS ABSOLUTE.—Neither 1

the issuer, whether acting as debtor in posses-2

sion or in any other capacity, nor any conser-3

vator, receiver, liquidating agent, or trustee in 4

bankruptcy for the issuer or any other assets of 5

the issuer may disaffirm, repudiate, or reject 6

the obligation to turn over property or to con-7

tinue servicing the cover pool as provided in 8

subparagraph (A). 9

(d) ADMINISTRATION AND RESOLUTION OF ES-10

TATES.—11

(1) TRUSTEE, SERVICER, AND ADMINIS-12

TRATOR.—13

(A) IN GENERAL.—Upon the creation of 14

any estate under subsection (b)(1) or (c)(2), the 15

applicable covered bond regulator shall—16

(i) act as or appoint the trustee for 17

the estate; 18

(ii) appoint 1 or more servicers or ad-19

ministrators for the cover pool held by the 20

estate; and 21

(iii) give the Secretary, the applicable 22

indenture trustee, the applicable covered 23

bondholders, and the owner of the residual 24



f:\VHLC\060811\060811.012.xml (495596|7)

32

interest written notice of the creation of 1

the estate. 2

(B) TERMS AND CONDITIONS OF APPOINT-3

MENT.—All terms and conditions of any ap-4

pointment under paragraph (1), including the 5

terms and conditions relating to compensation, 6

shall conform to the requirements of this Act 7

and the oversight program and otherwise shall 8

be determined by the applicable covered bond 9

regulator. 10

(C) QUALIFICATION.—The applicable cov-11

ered bond regulator may require the trustee or 12

any servicer or administrator for an estate to 13

post in favor of the United States, for the ben-14

efit of the estate, a bond that is conditioned on 15

the faithful performance of the duties of the 16

trustee or the servicer or administrator. The 17

covered bond regulator shall determine the 18

amount of any bond required under this sub-19

paragraph and the sufficiency of the surety on 20

the bond. A proceeding on a bond required 21

under this subparagraph may not be com-22

menced after two years after the date on which 23

the trustee or the servicer or administrator was 24

discharged. 25



f:\VHLC\060811\060811.012.xml (495596|7)

33

(D) POWERS AND DUTIES OF TRUSTEE.—1

The trustee for an estate is the representative 2

of the estate and, subject to the provisions of 3

this Act, has capacity to sue and be sued. The 4

trustee shall—5

(i) administer the estate in compliance 6

with this Act, the oversight program, and 7

the related transaction documents; 8

(ii) be accountable for all property of 9

the estate that is received by the trustee; 10

(iii) make a final report and file a 11

final account of the administration of the 12

estate with the applicable covered bond 13

regulator; and 14

(iv) after the estate has been fully ad-15

ministered, close the estate. 16

(E) POWERS AND DUTIES OF SERVICER OR 17

ADMINISTRATOR.—Any servicer or adminis-18

trator for an estate—19

(i) shall—20

(I) collect, realize on (by liquida-21

tion or other means), and otherwise 22

manage the cover pool held by the es-23

tate in compliance with this Act, the 24

oversight program, and the related 25



f:\VHLC\060811\060811.012.xml (495596|7)

34

transaction documents and in a man-1

ner consistent with maximizing the 2

value and the proceeds of the cover 3

pool; 4

(II) deposit or invest all proceeds 5

and funds received in compliance with 6

this Act, the oversight program, and 7

the related transaction documents and 8

in a manner consistent with maxi-9

mizing the net return to the estate, 10

taking into account the safety of the 11

deposit or investment; and 12

(III) apply, or direct the trustee 13

for the estate to apply, all proceeds 14

and funds received and the net return 15

on any deposit or investment to make 16

distributions in compliance with para-17

graphs (3) and (4); 18

(ii) may borrow funds or otherwise ob-19

tain credit, for the benefit of the estate, in 20

compliance with paragraph (2) on a se-21

cured or unsecured basis and on a priority, 22

pari passu, or subordinated basis; 23

(iii) shall, at the times and in the 24

manner required by the applicable covered 25



f:\VHLC\060811\060811.012.xml (495596|7)

35

bond regulator, submit to the covered bond 1

regulator, the Secretary, the applicable in-2

denture trustee, the applicable covered 3

bondholders, the owner of the residual in-4

terest, and any other person designated by 5

the covered bond regulator, reports that 6

describe the activities of the servicer or ad-7

ministrator on behalf of the estate, the 8

performance of the cover pool held by the 9

estate, and distributions made by the es-10

tate; and 11

(iv) shall assist the trustee in pre-12

paring the final report and the final ac-13

count of the administration of the estate. 14

(F) SUPERVISION OF TRUSTEE, SERVICER, 15

AND ADMINISTRATOR.—The applicable covered 16

bond regulator shall supervise the trustee and 17

any servicer or administrator for an estate. The 18

covered bond regulator shall require that all re-19

ports submitted under subparagraph (E)(iii) do 20

not contain any untrue statement of a material 21

fact and do not omit to state a material fact 22

necessary in order to make the statements 23

made, in light of the circumstances under which 24

they are made, not misleading. 25



f:\VHLC\060811\060811.012.xml (495596|7)

36

(G) REMOVAL AND REPLACEMENT OF 1

TRUSTEE, SERVICER, AND ADMINISTRATOR.—If 2

the covered bond regulator determines that it is 3

in the best interests of an estate, the covered 4

bond regulator may remove or replace the trust-5

ee or any servicer or administrator for the es-6

tate. The removal of the trustee or any servicer 7

or administrator does not abate any pending ac-8

tion or proceeding involving the estate, and any 9

successor or other trustee, servicer, or adminis-10

trator shall be substituted as a party in the ac-11

tion or proceeding. 12

(H) PROFESSIONALS.—The trustee or any 13

servicer or administrator for an estate may em-14

ploy 1 or more attorneys, accountants, apprais-15

ers, auctioneers, or other professional persons 16

to represent or assist the trustee or the servicer 17

or administrator in carrying out its duties. The 18

employment of any professional person and all 19

terms and conditions of employment, including 20

the terms and conditions relating to compensa-21

tion, shall conform to the requirements of this 22

Act and the oversight program and otherwise 23

shall be subject to the approval of the applica-24

ble covered bond regulator. 25



f:\VHLC\060811\060811.012.xml (495596|7)

37

(I) APPROVED FEES AND EXPENSES.—Un-1

less otherwise provided in the applicable terms 2

and conditions of appointment or employment, 3

all approved fees and expenses of the trustee, 4

any servicer or administrator, or any profes-5

sional person employed by the trustee or any 6

servicer or administrator shall be payable from 7

the estate as administrative expenses. 8

(J) ACTIONS BY OR ON BEHALF OF ES-9

TATE.—The trustee or any servicer or adminis-10

trator for an estate may commence or continue 11

judicial, administrative, or other actions, in the 12

name of the estate or in its own name on behalf 13

of the estate, for the purpose of collecting, real-14

izing on, or otherwise managing the cover pool 15

held by the estate or exercising its other powers 16

or duties on behalf of the estate. 17

(K) ACTIONS AGAINST ESTATE.—No court 18

may issue an attachment or execution on any 19

property of an estate. Except at the request of 20

the applicable covered bond regulator or as oth-21

erwise provided in this subparagraph or sub-22

paragraph (J), no court may take any action to 23

restrain or affect the resolution of an estate 24

under this Act. No person (including the appli-25



f:\VHLC\060811\060811.012.xml (495596|7)

38

cable indenture trustee and any applicable cov-1

ered bondholder) may commence or continue 2

any judicial, administrative, or other action 3

against the estate, the trustee, or any servicer 4

or administrator or take any other act to affect 5

the estate, the trustee, or any servicer or ad-6

ministrator that is not expressly permitted by 7

this Act, the oversight program, and the related 8

transaction documents, except for a judicial or 9

administrative action to compel the release of 10

funds that—11

(i) are available to the estate; 12

(ii) are permitted to be distributed 13

under this Act and the oversight program; 14

and 15

(iii) are permitted and required to be 16

distributed under the related transaction 17

documents and any contracts executed by 18

or on behalf of the estate. 19

(L) SOVEREIGN IMMUNITY.—Except in 20

connection with a guarantee provided under 21

paragraph (4) or any other contract executed 22

by the applicable covered bond regulator under 23

this section 4, the Secretary and the covered 24

bond regulator shall be entitled to sovereign im-25



f:\VHLC\060811\060811.012.xml (495596|7)

39

munity in carrying out the provisions of this 1

Act. 2

(2) BORROWINGS AND CREDIT.—3

(A) IN GENERAL.—Any servicer or admin-4

istrator for an estate created under subsection 5

(b)(1) or (c)(2) may borrow funds or otherwise 6

obtain credit, on behalf of and for the benefit 7

of the estate, from any person in compliance 8

with this paragraph (2) solely for the purpose 9

of providing liquidity in the case of timing 10

mismatches among the assets and the liabilities 11

of the estate. Except with respect to an under-12

writer, section 5 of the Securities Act of 1933, 13

the Trust Indenture Act of 1939, and any State 14

or local law requiring registration for an offer 15

or sale of a security or registration or licensing 16

of an issuer of, underwriter of, or broker or 17

dealer in a security does not apply to the offer 18

or sale under this paragraph (2) of a security 19

that is not an equity security. 20

(B) CONDITIONS.—A servicer or adminis-21

trator may borrow funds or otherwise obtain 22

credit under subparagraph (A)—23

(i) on terms affording the lender only 24

claims or liens that are fully subordinated 25



f:\VHLC\060811\060811.012.xml (495596|7)

40

to the claims and interests of the applica-1

ble indenture trustee and the applicable 2

covered bondholders and all other claims 3

against and interests in the estate, except 4

for the residual interest, if the servicer or 5

administrator certifies to the applicable 6

covered bond regulator that, in the busi-7

ness judgment of the servicer or adminis-8

trator, the borrowing or credit is in the 9

best interests of the estate and is expected 10

to maximize the value and the proceeds of 11

the cover pool held by the estate; or 12

(ii) on terms affording the lender 13

claims or liens that have priority over or 14

are pari passu with the claims or interests 15

of the applicable indenture trustee or the 16

applicable covered bondholders or other 17

claims against or interests in the estate, 18

if—19

(I) the servicer or administrator 20

certifies to the applicable covered 21

bond regulator that, in the business 22

judgment of the servicer or adminis-23

trator, the borrowing or credit is in 24

the best interests of the estate and is 25



f:\VHLC\060811\060811.012.xml (495596|7)

41

expected to maximize the value and 1

the proceeds of the cover pool held by 2

the estate; and 3

(II) the applicable covered bond 4

regulator authorizes the borrowing or 5

credit. 6

(C) LIMITED LIABILITY.—A servicer or ad-7

ministrator shall not be liable for any error in 8

business judgment when borrowing funds or 9

otherwise obtaining credit under this paragraph 10

(2) unless the servicer or administrator acted in 11

bad faith or in willful disregard of its duties. 12

(D) STUDY ON BORROWINGS AND CRED-13

IT.—The Comptroller General of the United 14

States shall conduct a study on whether the 15

Federal reserve banks should be authorized to 16

lend funds or otherwise extend credit to an es-17

tate under this paragraph (2) and, if so, what 18

conditions and limits should be established to 19

mitigate any risk that the United States Gov-20

ernment could absorb credit losses on the cover 21

pool held by the estate. The Comptroller Gen-22

eral shall submit a report to the Committee on 23

Banking, Housing, and Urban Affairs of the 24

Senate and the Committee on Financial Serv-25



f:\VHLC\060811\060811.012.xml (495596|7)

42

ices of the House of Representatives on the re-1

sults of the study not later than 6 months after 2

the date of enactment of this Act. 3

(3) DISTRIBUTIONS BY ESTATE.—All payments 4

or other distributions by an estate shall be made at 5

the times, in the amounts, and in the manner set 6

forth in the covered bonds, the related transaction 7

documents, and any contracts executed by or on be-8

half of the estate in compliance with this Act and 9

the oversight program. To the extent that the rel-10

ative priority of the liabilities of the estate are not 11

specified in or otherwise ascertainable from their 12

terms, distributions shall be made on each distribu-13

tion date under the covered bonds, the related trans-14

action documents, or any contracts executed by or 15

on behalf of the estate—16

(A) first, to pay accrued and unpaid super-17

priority claims under paragraph (2)(B)(ii); 18

(B) second, to pay accrued and unpaid ad-19

ministrative expense claims under paragraph 20

(1)(I), paragraph (2)(B)(ii), section 4(b)(5)(A), 21

or section 4(c)(6)(A); 22

(C) third, to pay—23

(i) accrued and unpaid claims under 24

the covered bonds and the related trans-25



f:\VHLC\060811\060811.012.xml (495596|7)

43

action documents according to their terms; 1

and 2

(ii) accrued and unpaid pari passu 3

claims under paragraph (2)(B)(ii); and 4

(D) fourth, to pay accrued and unpaid 5

subordinated claims under paragraph (2)(B)(i). 6

(4) DISTRIBUTIONS ON RESIDUAL INTEREST.—7

After all other claims against and interests in an es-8

tate have been fully and irrevocably paid or 9

defeased, the trustee shall or shall cause a servicer 10

or administrator to distribute the remainder of the 11

estate to or at the direction of the owner of the re-12

sidual interest. No interim distribution on the resid-13

ual interest may be made before that time, unless 14

the applicable covered bond regulator—15

(A) approves the distribution after deter-16

mining that all other claims against and inter-17

ests in the estate will be fully, timely, and irrev-18

ocably paid according to their terms; and 19

(B) provides an indemnity, for the benefit 20

of the estate, assuring that all other claims 21

against and interests in the estate will be fully, 22

timely, and irrevocably paid according to their 23

terms. 24



f:\VHLC\060811\060811.012.xml (495596|7)

44

(5) CLOSING OF ESTATE.—After an estate has 1

been fully administered, the trustee shall close the 2

estate and, except as otherwise directed by the appli-3

cable covered bond regulator, shall destroy all 4

records of the estate. 5

(6) NO LOSS TO TAXPAYERS.—Taxpayers shall 6

bear no losses from the resolution of an estate under 7

this Act. To the extent that the Secretary and the 8

Corporation jointly determine that the Deposit In-9

surance Fund incurred actual losses that are higher 10

because the covered bond program of an insured de-11

pository institution was subject to resolution under 12

this Act rather than as part of the receivership of 13

the institution under the Federal Deposit Insurance 14

Act (12 U.S.C. 1811 et seq.), the Corporation may 15

exercise the powers available under section 7(b) of 16

the Federal Deposit Insurance Act (12 U.S.C. 17

1817(b)) to recover an amount equal to those losses 18

after consulting with the Secretary. 19

SEC. 5. SECURITIES LAW PROVISIONS. 20

(a) EXISTING EXEMPTIONS APPLICABLE TO COV-21

ERED BONDS.—22

(1) TREATMENT OF CERTAIN BANKS AND 23

OTHER ENTITIES.—Any covered bond issued or 24

guaranteed by a bank or by an eligible issuer de-25



f:\VHLC\060811\060811.012.xml (495596|7)

45

scribed in section 2(9)(D) and sponsored solely by 1 1

or more banks is and shall be treated as a security 2

issued or guaranteed by a bank under section 3

3(a)(2) of the Securities Act of 1933 (15 U.S.C. 4

77c(a)(2)), section 3(c)(3) of the Investment Com-5

pany Act of 1940 (15 U.S.C. 80a-3(c)(3)), and sec-6

tion 304(a)(4)(A) of the Trust Indenture Act of 7

1939 (15 U.S.C. 77ddd(a)(4)(A)). No covered bond 8

issued or guaranteed by a bank or by an eligible 9

issuer described in section 2(9)(D) and sponsored 10

solely by 1 or more banks shall be treated as an 11

asset-backed security (as defined in section 3 of the 12

Securities and Exchange Act of 1934 (15 U.S.C. 13

78c)). Each covered bond regulator for 1 or more 14

banks may adopt, as part of the securities regula-15

tions of the covered bond regulator, a separate 16

scheme of registration, disclosure, and reporting ob-17

ligations and exemptions for covered bond programs. 18

(2) TREATMENT OF CERTAIN ASSOCIATIONS 19

AND COOPERATIVE BANKS.—Any covered bond 20

issued by an entity described in section 3(a)(5)(A) 21

of the Securities Act of 1933 (15 U.S.C. 22

77c(a)(5)(A)) or by an eligible issuer described in 23

section 2(9)(D) and sponsored solely by 1 or more 24

such entities is and shall be treated as a security 25



f:\VHLC\060811\060811.012.xml (495596|7)

46

issued by such an entity under section 3(a)(5)(A) of 1

the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)), 2

section 3(c)(3) of the Investment Company Act of 3

1940 (15 U.S.C. 80a-3(c)(3)), and section 4

304(a)(4)(A) of the Trust Indenture Act of 1939 5

(15 U.S.C. 77ddd(a)(4)(A)). No covered bond issued 6

by an entity described in section 3(a)(5)(A) of the 7

Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)) or 8

by an eligible issuer described in section 2(9)(D) and 9

sponsored solely by 1 or more such entities shall be 10

treated as an asset-backed security (as defined in 11

section 3 of the Securities and Exchange Act of 12

1934 (15 U.S.C. 78c)). Each covered bond regulator 13

for 1 or more entities described in section 3(a)(5)(A) 14

of the Securities Act of 1933 (15 U.S.C. 15

77c(a)(5)(A)) may adopt, as part of the securities 16

regulations of the covered bond regulator, a separate 17

scheme of registration, disclosure, and reporting ob-18

ligations and exemptions for covered bond programs. 19

(3) CONSTRUCTION.—No provision of this Act, 20

including paragraph (1) or (2), may be construed or 21

applied in a manner that impairs or limits any other 22

exemption that is available under applicable securi-23

ties laws. 24



f:\VHLC\060811\060811.012.xml (495596|7)

47

(b) EXEMPTIONS FOR ESTATES.—Any estate that is 1

or may be created under section 4(b)(1) or 4(c)(2) shall 2

be exempt from all securities laws but—3

(1) shall be subject to the reporting require-4

ments established by the applicable covered bond 5

regulator under section 4(d)(1)(E)(iii); and 6

(2) shall succeed to any requirement of the 7

issuer to file such periodic information, documents, 8

and reports in respect of the covered bonds as speci-9

fied in section 13(a) of the Securities and Exchange 10

Act of 1934 (15 U.S.C. 78m(a)) or rules established 11

by an appropriate Federal banking agency. 12

(c) EXEMPTIONS FOR RESIDUAL INTERESTS.—Any 13

residual interest in an estate that is or may be created 14

under section 4(b)(1) or 4(c)(2) shall be exempt from all 15

securities laws. 16

SEC. 6. MISCELLANEOUS PROVISIONS. 17

(a) DOMESTIC SECURITIES.—Section 106(a)(1) of 18

the Secondary Mortgage Market Enhancement Act of 19

1984 (15 U.S.C. 77r–1(a)(1)) is amended—20

(1) in subparagraph (C), by striking ‘‘or’’ at 21

the end; 22

(2) in subparagraph (D), by adding ‘‘or’’ at the 23

end; and 24



f:\VHLC\060811\060811.012.xml (495596|7)

48

(3) by inserting after subparagraph (D) the fol-1

lowing: 2

‘‘(E) covered bonds (as defined in section 3

2 of the United States Covered Bond Act of 4

2011),’’. 5

(b) NO TAX IMPLICATIONS.—Any estate created 6

under section 4(b)(1) or 4(c)(2) shall not be treated as 7

an entity subject to taxation separate from the owner of 8

the residual interest for purposes of the Internal Revenue 9

Code of 1986 (26 U.S.C. 1 et seq.), including by reason 10

of the taxable mortgage pool provisions of section 7701(i) 11

of the Internal Revenue Code of 1986 (26 U.S.C. 7701(i)), 12

but instead shall be treated as a disregarded entity that 13

is owned by the owner of the residual interest for such 14

purposes as described in applicable regulations of the Sec-15

retary, as in effect on the date of the enactment of this 16

Act. No transfer or assumption of any asset or liability 17

to or by an estate or an eligible issuer under section 4(b) 18

or 4(c) shall cause or constitute an event in which gain 19

or loss shall be recognized under section 1001 of the Inter-20

nal Revenue Code of 1986 (26 U.S.C. 1001). 21

(c) REAL ESTATE MORTGAGE INVESTMENT CON-22

DUITS.—Section 860G(a)(3) of the Internal Revenue Code 23

of 1986 (26 U.S.C. 860G(a)(3)) is amended—24



f:\VHLC\060811\060811.012.xml (495596|7)

49

(1) in subparagraph (B), by striking ‘‘and’’ at 1

the end; 2

(2) in subparagraph (C), by striking the period 3

and inserting ‘‘, and’’; and 4

(3) by inserting after subparagraph (C) the fol-5

lowing: 6

‘‘(D) covered bonds that are secured by eli-7

gible assets from the residential mortgage asset 8

class or the commercial mortgage asset class, as 9

such terms are defined in section 2 of the 10

United States Covered Bond Act of 2011.’’. 11

(d) REAL ESTATE INVESTMENT TRUSTS.—To the ex-12

tent provided by regulations that may be promulgated by 13

the Secretary, a covered bond described in section 14

860G(a)(3)(D) of the Internal Revenue Code of 1986 shall 15

be treated as a real estate asset in the same manner as 16

a regular interest in a REMIC for purposes of section 17

856(c)(5)(E) of such Code. 18

(e) INVESTMENT TREATMENT FOR TAX PUR-19

POSES.—The acquisition of any covered bond shall be 20

treated as an acquisition of an investment security, and 21

not as an acquisition of an interest in a loan or otherwise 22

as a lending transaction, for purposes of determining the 23

character of any related trade or business activity of the 24



f:\VHLC\060811\060811.012.xml (495596|7)

50

acquirer or any asset held by the acquirer under the Inter-1

nal Revenue Code of 1986 (26 U.S.C. 1 et seq.). 2

(f) STATE AND LOCAL TAXES.—The Secretary may 3

promulgate regulations under this Act that are similar to 4

the provisions of section 346 of title 11, United States 5

Code, including regulations to provide that—6

(1) if an estate created under section 4(b)(1) or 7

4(c)(2) is not treated as an entity subject to tax-8

ation separate from the owner of the residual inter-9

est for purposes of the Internal Revenue Code of 10

1986 (26 U.S.C. 1 et seq.), no separate taxable enti-11

ty shall be created with respect to the estate for pur-12

poses of any State or local law imposing a tax on 13

or measured by income; and 14

(2) if a transfer or assumption of an asset or 15

liability to or by an estate or an eligible issuer under 16

section 4(b) or 4(c) does not cause or constitute an 17

event in which gain or loss is recognized under sec-18

tion 1001 of the Internal Revenue Code of 1986 (26 19

U.S.C. 1001), the transfer or assumption shall not 20

cause or constitute a disposition for purposes of any 21

provision assigning tax consequences to a disposition 22

in connection with any State or local law imposing 23

a tax on or measured by income. 24



f:\VHLC\060811\060811.012.xml (495596|7)

51

(g) NO CONFLICT.—The provisions of this Act shall 1

apply, notwithstanding any provision of the Federal De-2

posit Insurance Act (12 U.S.C. 1811 et seq.), title 11, 3

United States Code, title II of the Dodd-Frank Wall 4

Street Reform and Consumer Protection Act (12 U.S.C. 5

5381 et seq.), or any other provision of Federal law with 6

respect to conservatorship, receivership, liquidation, or 7

bankruptcy. No provision of the Federal Deposit Insur-8

ance Act (12 U.S.C. 1811 et seq.), title 11, United States 9

Code, title II of the Dodd-Frank Wall Street Reform and 10

Consumer Protection Act (12 U.S.C. 5381 et seq.), or any 11

other provision of Federal law with respect to conservator-12

ship, receivership, liquidation, or bankruptcy may be con-13

strued or applied in a manner that defeats or interferes 14

with the purpose or operation of this Act.15



f:\VHLC\060811\060811.012.xml (495596|7)

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